Comerica Inc. now projects a “W-shaped pattern” for U.S. economic performance with a steep decline in Real GDP for the second quarter, a partial rebound in the third and a small decline to end the year.
The latest Comerica outlook takes into account the waning and subsequent second wave of the COVID-19 pandemic, the spread of the disease and its effects on labor markets.
The outlook projects a 28.3-percent decline in Real GDP in the U.S. for the second quarter, followed by 12.1-percent growth in the third quarter and a modest 2.6-percent decline in the final three months of 2020 “as the pandemic reasserts itself and social mitigation policies are strengthened,” according to Comerica.
“Even if economic conditions in early summer improve significantly we cannot be certain that the blue sky overhead does not represent just the eye of the coronavirus hurricane,” Comerica economists wrote in the outlook they issued today. “It is important to note that the W-shaped pattern does not imply symmetry in the down-up-down-up pattern. Even though our May forecast shows a strong rebound in the third quarter, as social mitigation policies get relaxed, the third quarter rebound pales in comparison to the second quarter downdraft. Likewise, the GDP dip in the fourth quarter, as stricter social mitigation policies are re-applied, is not nearly as severe as the second quarter dip.”
Looking beyond 2020, Comerica projects flat quarterly Real GDP to start 2021, and then a low 1.8 percent growth rate in each of the next two quarters.
U.S. auto sales will decline sharply this year to 13.3 million units, from 17 million in 2019, then rebound in 2021 to 16.1 million units, Comerica projects.
Unemployment nationally will balloon to 12.4 percent for the second quarter, after peaking at more than 14 percent in April alone, then settle back to 8.6 percent in the third, assuming that about half of the nearly 20 million workers furloughed in April will return to work by the end of September.
Comerica expects that unemployment will remain “stubbornly high” above 8 percent at least through the summer of 2021.
“The re-employment of the huge number of recently furloughed workers will be a critical determinant of the economic recovery path,” according to the outlook.
The W-shape economic declines and rebounds are among three scenarios Comerica describes in the outlook, each with varying peaks and valleys. All three expect that “some ongoing social mitigation practices will be necessary through the remainder of this year,” and presume that the COVID-19 pandemic “will be with us for at least another 18 to 24 months.”
Comerica economists noted that the regular economic forecasting models “break down” in times such as the current crisis, making economic forecasting harder than ever to predict.
“So we are trying to look into the future in a highly uncertain environment with tools that were not built to deal with the current conditions. Needless to say, the confidence placed on any one economic forecast right now must be appropriately low,” economists wrote.
The outlook considers public policies and social mitigation put in place during the pandemic to lessen the spread of COVID-19. Comerica economists cite the potential tradeoffs of stay-home orders and the resulting economic damage, versus the growing death toll.
“Officials at all levels are grappling with very opaque choices between effectiveness and efficiency. A 100 percent effective policy is not necessarily the most efficient. If we apply extreme shelter-in-place policy globally for several months on end, that would likely be effective in halting the pandemic. However, the economic cost would be prohibitive,” Comerica economists wrote. “Conversely, we can follow an economically efficient policy that keeps the economy functioning at the cost of a wider spread of the contagion and more deaths. There is no right and wrong when trying to distinguish between effectiveness and efficiency, that is why social mitigation policy is appropriately a part of the political arena.”
As of Monday, Michigan 47,552 confirmed cases of COVID-19, an increase of 414 from Sunday, and 4,584 deaths, an increase of 33.